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Refinery Margin Tracker: USGC margins rise; Valero inks new supply deal with Mexico despite weaker demand

New York — US Gulf Coast refining margins inched higher despite weaker refined product demand from Mexico, a trend which is not deterring refiners like Valero from signing more supply contracts in the country, an analysis from S&P Global Platts showed Monday.

USGC cracking margins from WTI MEH moved up to $10.06/b for the week ended November 22 from the $8.896/b the week earlier, according to S&P Global Platts Analytics margins data.

Mexico product demand fell 130,000 b/d year over year in October 2019, or 9.2%, according to data released by state oil company Petroleos Mexicanos Friday.

"Negative trends in Mexican refined product demand signals red for US refined product exports, as Mexico has accounted for 55% of gasoline and 21% of diesel exports year to date," Tudor Pickering Holt analyst Matthew Blair said Monday in a research note.

Gasoline demand fell 5.1% year on year while diesel dropped 25.3% year on year, creating a potential problem for USGC refiners who depend on Mexico and South America as an outlet for growing production.

"Following this month's data Mexico's total refined product demand is down 10.7% year to date, with gasoline and diesel demand down 6.1% and 22.1% year to date," Blair said.

VALERO ANNOUNCES NEW SUPPLY DEAL

Weakening Mexico refined product demand has not stopped US refiners from signing long-term supply agreements in different regions of Mexico, trying to capture market share in a falling demand scenario.

On Monday, Valero Energy said it signed yet another long-term agreements with Mexico -- this one for the use of three new refined product terminals located in Guadalajara, Monterrey and Altamira for a total of 2.4 million barrels of storage capacity.

"These terminals will support Valero's strategy to expand its product supply its product supply chain into high growth markets and are expected to start operations in 2021," the company said in the statement.

Valero currently markets refined products through a third-party terminal in Nuevo Laredo through three rail-to-truck trans load facilities located in Guadalajara, Monterrey, and Chihuahua with plans to start trans load products in Puebla starting 2020.

Including the long-term agreements signed in 2017 for three other terminals due online in 2020, Valero will have a total of 5.8 million barrels of storage capacity in underdeveloped Mexican markets.

USGC TO MEXICO GASOLINE PRICE SPREAD WIDENING

Valero's third quarter exports to Mexico and other countries dropped in the third quarter to around 300,000 b/d from the around 400,000 b/d in the third quarter of 2018, due to stronger demand pull in the US keeping barrels out of the export market, a company executive said.

"With the large light product inventory draws we saw in the US, we had a better netback going into the domestic markets," Gary Simmons, Valero's head of operations, said on the October 24 third-quarter results call.

However, the spread in the fourth quarter is narrowing between USGC gasoline and Mexican gasoline, more likely opening the door to more exports.

In the third quarter, RBOB cargoes to Eastern Mexico were priced at an average $1.7073/gal, while USGC pipeline RBOB prices averaged $1.7055/gal, only a few points difference, according to Platts assessments.

So far in the fourth quarter, the spread has been averaging about 5 cents/gal, with Mexican RBOB cargoes at $1.6164/gal and US pipeline RBOB at $1.7055/gal.

Falling Mexican demand for refined products and poor performance by their refineries has helped improve USGC margins for Mexico's benchmark heavy crude, Maya. Coking margins were seen at $11.52/b for US Gulf Coast refiners looking for heavy barrels for the week ended November 29.

The recent change by Mexican state-oil company, Pemex, in the pricing formula for its benchmark heavy crude, Maya, for December barrels will boost margins to $18.12/b for the last week of the year. For cargoes headed to the USGC, PMI - trading arm of Pemex, set the first K factor under the formula at minus $8/b. The new formula is 0.65 WTI Houston and 0.35 ICE Brent plus the K factor which is adjusted monthly for market conditions.

US Atlantic Coast Refining Margin Averages ($/b)
Bonny Light Cracking Syncrude Cracking Bakken Crude Cracking Forties Cracking
Week ending November 22 5.91 7.95 12.06 3.84
Week ending November 15 6.32 7.77 11.75 4.10
Q4 to date 8.59 9.20 14.12 7.41
Q4-18 3.73 25.67 18.27 3.39
Q3-19 8.83 6.49 14.32 9.06
Q2-19 7.43 9.12 14.06 7.66
Source: S&P Global Platts Analytics
US Gulf Coast Refining Margin Averages ($/b)
WTI MEH Cracking Isthmus Cracking Mars Coking Vasconia Coking
Week ending November 22 10.06 3.96 8.25 8.82
Week ending November 15 8.96 3.10 6.91 7.96
Q4 to date 12.78 6.68 10.61 9.96
Q4-18 7.03 2.77 6.47 7.39
Q3-19 11.82 7.84 9.26 10.17
Q2-19 9.60 7.05 8.34 9.26
Source: S&P Global Platts Analytics
US Midwest Refining Margin Averages ($/b)
Bakken Cracking Syncrude Cracking WTI Cushing Cracking WCS ex-Cushing Coking
Week ending November 22 11.55 12.54 10.35 12.79
Week ending November 15 11.02 11.85 9.73 11.93
Q4 to date 13.79 13.35 12.64 13.80
Q4-18 20.57 30.09 11.69 13.84
Q3-19 14.94 12.33 13.38 14.23
Q2-19 18.57 17.54 16.91 16.96
Source: S&P Global Platts Analytics
US West Coast Refining Margin Averages ($/b)
ANS Cracking Napo Coking Arab Medium Coking Vasconia Coking
Week ending November 22 12.42 15.76 12.65 17.36
Week ending November 15 13.73 16.13 13.21 18.49
Q4 to date 23.45 26.94 25.42 29.93
Q4-18 12.68 16.26 13.70 16.74
Q3-19 16.66 18.34 15.74 21.02
Q2-19 19.49 22.33 18.46 24.38
Source: S&P Global Platts Analytics
Singapore Refining Margin Averages ($/b)
Dubai Cracking Forties Cracking ESPO Cracking WTI MEH Cracking
Week ending November 22 -2.98 -3.00 -3.88 0.37
Week ending November 15 -1.99 -0.90 -4.23 0.82
Q4 to date 0.72 0.49 -1.24 2.59
Q4-18 2.41 0.13 0.74 2.79
Q3-19 3.62 1.20 1.60 3.94
Q2-19 0.81 -1.14 0.22 1.95
Source: S&P Global Platts Analytics
ARA Refining Margin Averages ($/b)
Forties Cracking Bonny Light Cracking Azeri Light Cracking Urals Cracking
Week ending November 22 3.15 5.63 2.51 3.71
Week ending November 15 3.64 5.71 2.21 2.68
Q4 to date 6.32 7.50 4.22 6.34
Q4-18 3.89 4.39 3.85 5.12
Q3-19 6.52 7.47 5.58 7.30
Q2-19 4.99 6.18 4.65 5.80
Source: S&P Global Platts Analytics
Italy Refining Margin Averages ($/b)
Urals Cracking CPC Blend Cracking Azeri Light Cracking WTI MEH Cracking
Week ending November 22 1.33 5.45 2.14 3.63
Week ending November 15 0.90 5.48 2.15 3.59
Q4 to date 4.89 8.79 4.90 6.32
Q4-18 3.52 5.47 3.60 3.44
Q3-19 5.57 8.83 5.61 7.52
Q2-19 3.83 6.50 3.85 5.25
Source: S&P Global Platts Analytics

-- Janet McGurty, janet.mcgurty@spglobal.com

-- Edited by Pankti Mehta, newsdesk@spglobal.com